Samsung Hit by Historic Profit Fall, Spurring Capex Cut Hope
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Samsung Hit by Historic Profit Fall, Spurring Capex Cut Hope
Samsung Hit by Historic Profit Fall, Spurring Capex Cut Hope
(Bloomberg) -- Samsung Electronics Co.’s profit dropped by the most in over a decade, in a sign that the global economic slowdown may be hurting electronics demand even more than anticipated.
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South Korea’s largest company has been grappling with weak demand for memory chips, smartphones and displays as consumers tamp down holiday spending amid soaring interest rates and inflation. Adding to demand woes, Apple Inc., one of Samsung’s biggest customers for displays and memory chips, suffered production delays at its iPhone assembly complex in the Chinese city of Zhengzhou.
Samsung’s operating profit fell by 69% to 4.3 trillion won ($3.4 billion) for the three months ended December, missing the average estimate of 6.7 trillion won by analysts. Sales fell to 70 trillion won, according to a company statement. Samsung is slated to provide a full financial statement with net income and information on divisional performance on Jan. 31.
The grim preliminary numbers are adding pressure on Samsung, the world’s largest memory chipmaker, to shift gears and lower output and capex, fueling hopes for a turnaround. Samsung shares gained about 1% after swinging between gains and looses at the market open. Rival SK Hynix Inc. also climbed about 1% while Korean chip suppliers jumped.
“Samsung has been adamant that it has no plans to cut capex or supply, but fast deterioration in demand and deteriorating profitability means that management might be forced to consider the unthinkable, that is, memory production cuts,” said CLSA analyst Sanjeev Rana.
While Samsung’s inventory levels suggest a turnaround in the second quarter, a likely cut in memory chip production could mean a turnaround “a bit earlier,” Daniel Yoo, head of global asset allocation at Yuanta Securities Korea, told Bloomberg TV.
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